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Is an SMSF right for you? 6 pros and 5 cons to consider
Andrew Stubbs • Jan 31, 2021

There has been a lot of talk about Self-Managed Super Funds in recent years. You will have noticed there has been mixed media coverage about whether SMSFs are a good choice for managing the average person's superannuation.


Your superannuation choices are crucial and the decisions you make now could result in a difference-positive or negative-of many hundreds of thousands of dollars when it comes time for you to retire.


In this article we'll address the pros and cons of using a Self-Managed Super Fund for your superannuation, but first let's clarify what an SMSF is…


What is a Self-Managed Super Fund?


A simple way of describing a Self-Managed Super Fund (SMSF) is that it's a special type of bank account that has very strict rules applied to how you can use it, and it allows you to put your superannuation contributions into that fund-your own SMSF-rather than into an industry or retail superannuation fund.


Having your own private super fund allows you to choose the investments and the insurance, and you manage every aspect of the fund yourself, with assistance from specialist SMSF advisors, administrators and auditors.


You can have up to four members in your SMSF and most have two or more family or friends as members. Members are called 'trustees' of the fund - or you can have a 'corporate trustee' which is where you set up a company to act as the trustee. In this case, the members must also be directors of that company.


There's more to it, of course, but that's it in a nutshell. 


Is an SMSF right for you?


The decision to set up a Self-Managed Super Fund should not be taken lightly or be made on a whim because even though it gives you control over how your superannuation contributions are invested, it involves additional complexity and annual compliance costs and professional support fees.


For those reasons, it's best to seek personalised advice specific to your situation before making the decision. We can guide you here.


Before you even take that step though, here's a list of considerations to help you make a preliminary assessment of whether an SMSF may be a fit for you:


Do you want:


  • More control over how your money is invested?
  • To stop paying fees to super fund managers who are not working hard to earn the management fees you pay them each year?
  • More flexibility in how you pass on your wealth? 


Do you have:


  • Experience and knowledge in how to invest your super funds?
  • Time to actively research and manage your investments?
  • Attention to detail for keeping up with SMSF rules and regulations?
  • At least a $200K superannuation balance to justify the annual SMSF expenses and make it cost effective for you? (The recommended minimum super balance to achieve before setting up an SMSF can vary, depending on the circumstances and objectives.) 


6 pros of having an SMSF


Some of the advantages of setting up and running your own Self-Managed Super Fund include:


  1.Investment choice


Having an SMSF gives you the widest range possible of investment options because the decisions are up to you, within certain rules of course. As a trustee you can directly access shares, cash accounts, term deposits, real estate, unlisted assets, international markets and even collectables.


  2.Tax strategies


Concessional (i.e. lower) tax rates apply to SMSFs, just as they to do industry and retail super funds:


  • Accumulation phase: Tax on investment income is capped at 15%
  • Pension phase: There is no tax payable, not even Capital Gains Tax.


The government wants you to be a self-funded retiree to ease the burden on the welfare system as our population ages and more people enter retirement. The fewer people on the pension the better, and so the government's concessional tax rates on superannuation will help you accelerate your path to achieving that.


We can guide and help you implement the tax strategies that can grow your super savings and reduce tax payments as you transition to retirement.


  3.Flexibility


Each member of an SMSF has the flexibility to run their own ideal mix of accumulation and pension accounts. As market conditions, superannuation rules or your own personal circumstances change, you can quickly adjust your investment strategy because you are in control of the decisions.


  4.Transparency


SMSF trustees appreciate having complete transparency over where their money is invested, how their investments are performing and how they are being taxed. If you have a strong investment preference for one class of asset over another-for example, for property instead of shares-or you want to invest in mainly sustainable and ethical investments, you can. You have complete visibility on what's happening in your SMSF and how it is performing.


  5.Cost


Each year an SMSF must:


  • lodge an annual tax return (= SMSF administration accounting fees)
  • be audited by a registered SMSF auditor (= SMSF audit fees)
  • pay compliance lodgment fees (= Australian Tax Office (ATO) fees)


The ATO's SMSF fees are fixed and do not vary based on the SMSF's fund balance.


SMSFs become more cost-effective as the fund balance grows and, conversely, SMSFs are not cost-effective when the super balance is too small; this is because the professional fees and lodgment costs are too high as a percentage of the fund's balance.


It's important you first have a large enough super balance to justify setting up an SMSF. We can guide you on that decision.


  6.Consolidate superannuation assets


To reduce the costs of running a Self-Managed Super Fund, as a trustee you can combine your superannuation assets in an SMSF with up to three other members such as partners or family members.


Combining super accounts creates a larger fund balance which, in addition to increasing the fund's assets and investment opportunities, means there's only one set of fees.


Of course, there are potentially complex relationship issues to consider before doing this.


5 cons of having an SMSF


Like anything in life, there are pros and cons to each approach.


Following are risks that are important to understand before you set up an SMSF because the risks don't apply to industry and retail super funds.


  1.Cost


As we covered above, if your super balance is not large enough, the costs involved in setting up and managing your own SMSF cannot be justified. So whether the costs are a pro or a con depends entirely on the size of your superannuation balance.


  2.Legal responsibilities


You are responsible for managing your SMSF and this includes complying with important duties, laws and rules. Not complying with these can result in significant penalties.


  3.Fraud risk


Members of Self-Managed Super Funds cannot go to a complaints body in the event of fraud. Members of industry and retail super funds, on the other hand, can resolve disputes in a timely and low-cost manner, certainly compared with taking legal action.


There are measures you can put in place to ensure you're not an easy target for fraud, but if fraud does occur, it could result in costly and time-consuming legal action for the SMSF members.


  4.Insurance cover


Adding life and disability insurance cover to your standard super fund membership is straightforward, but for an SMSF member it may be more difficult or expensive to secure.


  5.Winding up costs


If your circumstances changed significantly-for example you experience bankruptcy, a relationship breakdown, a business failure, a loss of mental capacity, or you become a non-resident-a reduced superannuation balance might cause you to want to, or have to, wind up your SMSF.


It's important you are aware of the winding up costs that may apply and put in place a contingency plan for this potential risk.


What should you do next?


As you can see, while the control and transparency that an SMSF can give you over your super is appealing, there's more work, complexity and potential risk.


On the flipside, running your own super fund can be a very rewarding experience and give you the opportunity to generate better returns in your preferred types of assets.


If you'd like to have a chat about whether your combined super balance, current situation and personal investment preferences make an SMSF a good for you or not, get in touch with us for an initial chat.


There's no cost or obligation for this initial discussion.

Why Your Business Needs to Invoice Using the New Peppol Network

By Andrew Stubbs • 05 Jun, 2022
Here's some good news if your business sends invoices to business or government customers. Peppol* is on its way. (That's Peppol, not Peppa .) Ever had this conversation in your business? You or one of your team: "Hello, I'm calling to follow up the invoice we emailed to you last month. It hasn't been paid yet." Customer: "Really? We didn't receive that invoice?" In addition to the time and expense of following up, the cash flow delays create stress for you and they hurt your business. Thankfully, the adoption of Peppol will solve this problem. What is Peppol? Peppol is an obscure acronym for Pan-European Public Procurement On-Line. What's more important than what it stands for, is what it enables. Peppol is an international 'eProcurement' framework for the electronic exchange of information. It creates a standard approach for governments and businesses to structure and exchange information such as invoices and other documents. What Peppol means for you and your business Peppol makes electronic ordering, invoicing and shipping between governments and private companies faster, simpler and more secure. This means your business will get paid faster when dealing with government and larger businesses. In 2019, Australia and New Zealand adopted this platform for e-invoicing which, when implemented, will make 'we never received your invoice' issues virtually impossible. The new e-invoicing system is more secure than email and provides many other benefits. Which countries are adopting Peppol? There are currently 40 OpenPeppol member countries: 32 countries in Europe plus Australia, New Zealand, USA, Canada, China, Japan, Mexico and Singapore. Each country has a Peppol authority. For example, in Australia that's the Australian Tax Office (ATO). Is Peppol already in use? Yes it is. For example, the SuperStream system in Australia-which many businesses are currently using to automate the payment of employee superannuation contributions-is based on the Peppol protocol. How does e-invoicing work? The system connects the accounting systems of all businesses and government departments via the secure Peppol network.  Suppliers generate sales invoices in their accounting systems which are sent to Peppol.

Company Director? Why You Need to Apply for Your DIN

By Andrew Stubbs • 04 May, 2022
If you're a director of an Australian company-or you plan to be-take 5 minutes now to read this article. All existing directors (and intending directors) of Australian companies need to be aware that the Australian Government has announced the introduction of a new mandatory Director Identification Number (DIN) system. (You'll notice the term director ID is also used for DIN.) This system is the initial step in the Modernising Business Registry (MBR) Program which has been established under the Treasury Laws Amendment Act which was legislated by the Australian Government in 2020. More information on the MBR program can be found here . What is the DIN system trying to achieve? The DIN aims to provide accountability and traceability of a director's relationships over time, across all companies and will provide information on a director's involvement in what may be repeated unlawful activity, including illegal phoenix activity. It should also solve the problem of false or fraudulent director identities. What are the key features? It is mandatory for all directors, foreign directors and alternate directors of Australian companies to hold a DIN. The DIN is a unique 15 digit number. The first 3 digits will be 036 which is the identifier for Australia. The last digit is a check digit to help with accuracy when quoting your DIN. Like your tax file number, you will only be issued with one DIN which you will hold for life - even if you cease acting as a director for any period. To obtain a DIN, you will need to prove your identity so you will not be able to hold multiple DINs. Other office holders (e.g. company secretaries) are not required to register. The director is responsible for updating the DIN records for any changes in personal information within 7 days of the change. The director must apply personally. The process cannot be completed by your accountant, lawyer, spouse or executive assistant. There are significant penalties for non-compliance. How do you apply for a DIN? Directors have 3 options for applying. You can apply online from 1 November 2021. To use this method, you must first establish your identity via myGovID (an app you download on your smart device which is different from myGov). Once set up, your myGovID will make accessing a wide range of government services easier. (It's not just for your DIN application). For information on how to set up a myGovID please go to https://www.mygovid.gov.au/set-up During the DIN application process, you will need additional information such as your tax file number (TFN) and your residential address as per ATO records. It would also be advisable to have other personal details such as bank account details, medicare card or a recent income tax assessment available in case these are required. You can also apply by phone ( 13 62 50 ). During the call, the operator will ask for the identity documents you would have used to obtain your myGovID (passport and driver licence) as well as the additional information listed above. These details will be confirmed with the records held on existing government databases and, assuming the details agree, your DIN will be issued. Or you can apply by mail, but this is not recommended because the process for doing this seems vague ("Write to us") which means you can probably expect a lengthy process of certifying documents and coping with the vagaries of the postal system. One of the other two methods would be a better choice. When will you need to apply for a DIN? Transitional arrangements will allow directors to become familiar with the new requirement. When you need to have a director ID will depend on when you were appointed as a director.

7 Best Practices for Setting Your Small Business on the Success Track

By Andrew Stubbs • 07 Apr, 2022
If you're a small business owner, you're always on the lookout for better ways to go about routine tasks to boost growth and underpin reliability. So, yes, you have the will; now, what are the ways? What are those consistent routines you can instill that will have the most benefits? This article looks at the top 6 things you can do to help your business thrive. We're going to cover finances, goals, marketing, technology and you ! So, let's take a look… 1. Your finances are a scorecard … and a predictor Boil it all down and dollars in the bank are the report card on the health of your business operations. Surprising then that so many people don't really pay much attention to how much they've earned, nor how much they're likely to earn. As much as it might feel like a chore, reviewing your sales and financial projections and then using them to ascertain if you need business financing is a discipline worth cultivating . If you suspect that your cash flow is precarious, you should be checking out your options today. First metric to check: your credit score. If it is too low, you need to take steps to shore it up. Next, check in with your bank or finance broker about what loans are available. 2. Goal setting, goal achieving, goal celebrating So, if you're using current and future dollars in the bank to keep score, the next thing is to do something about it. This is where goal setting comes in. If thoughtfully set and persistently pursued, goals help you orientate your willpower and your energy at each moment of the business day. This is the hidden power of goals: giving you a good sense of direction and a way to channel your instincts towards wise objectives. Constantly checking in with your goals makes them a benchmarking tool to keep your business pointed in the right direction. Yes, just having goals helps. Actually achieving a goal helps too, of course! 3. Increasing the impact of your marketing Marketing is not magic. It is not a mystery. It is not an art. However, many less-than-reputable marketers will try to claim that it is. They do so to gain wiggle room to pad their invoices and cover up their lack of skill. What this means is that it is easy to waste money on ineffective marketing. The good news is that there are many low-budget marketing strategies that actually work to help grow your brand and reputation. Scout around on the internet and choose one or two new tactics. Deploy them and test them. If they work, double down. If they don't, try something else. If you can't tell if they're working, also try something else. Social media is the obvious starting place for these low-stakes experiments and the old classics of LinkedIn, Facebook and Twitter are where to trial them. 4. Bringing your business up to date technologically The ability of modern productivity and project-management tools to give small players the same capabilities as the big boys simply cannot be ignored. Harness them properly and they'll let your small businesses operate with the same productivity as the titans of your sector. And, if your business is in the services sector, the increased controls that business technologies can yield also lets you be highly agile - that's something the big boys can't do. So, ask yourself: are you taking full advantage of what's out there? Don't worry, the answer to this question is always 'no' - the field is simply moving too fast for anyone to be able to take full advantage. However, if you have a realistic view of your needs, then you have a yardstick to help assess all the solutions out there. When you know what you need the technology to do, then you can wisely choose what hardware, software, platforms and techniques to introduce. 5. SEO has changed and it is going to change again Google - indeed all platforms offering broad search functions, from Youtube to Facebook - are constantly altering and optimising their algorithms. This, in turn, means SEO practice must constantly evolve to keep pace. So, if your SEO approach hasn't been overhauled in a few years, the time has come to give it some attention. Do a review of best practice and score how you cater to SEO in your online presences. Yet, because the underlying concept of SEO has not changed, the corrective actions you need to take may not be major. Then again, they might be! It is better to know unpleasant news sooner than outright bad news later. 6. Download the right new apps The remote work trend has gone mega and this means mobile productivity apps are very much of-the-moment. See, you can get a surprising amount done with just your phone and tablet. And apps are how it all happens … plus connectivity and a full battery, of course! Usually, apps are best for keeping an eye on things, boosting effectiveness on the "busy" tasks and enabling you to give your stamp of approval to work that needs your say-so to progress. In general, these are not value-adding tasks, just the value-neutral tasks that get in the way of the value-adding tasks. Now, there is no end of apps out there. So, as always, don't bother looking until you have some idea of what you need. 7. You are the ultimate business tool Health is the single most important aspect to consider for anyone running a business. It's the non-negotiable factor that governs everything else you are capable of. To adapt a quote from Arnold Schwarzenegger, being fit and healthy is "a status symbol. It reflects you worked hard for it; no money can buy it. You cannot borrow it, you cannot inherit it, you cannot steal it". This means that you must get enough sleep every night (most people need 7 hours or more). This means a healthy diet must become your preferred way of eating. This means that you should exercise every single day (except when sick). This means you must give your mind a rest too . Meditation isn't some mystic monkish thing, it's simply the practice of letting your thoughts come and go while you - the observer - stay peaceful and undisturbed by them. Think of it like this, meditating is mediating your mind. Take stock, choose wisely, make small steps in the right direction In this article, we've talked about some improvements you can make to what you're already doing. You don't have to do all of these at once. Start with the one that seems easiest and then stick with it to see if it works. Remember, it's not always about big changes. Often, you can make major improvements in outcome by making small changes to input. Doing the little things better. So take stock, choose wisely and be sure to make those small steps in the right direction for success today, tomorrow and the next day.
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